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An asset’s structure

Our next course we will add to our investing toolkit by exploring the wonderful world of technical analysis. If we can master our ability to find ideas that make sense fundamentally and then combine this with the ability to perform technical analysis, that will help us a lot in our trading or investing endeavors. We hope to see you there! :)

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    When people first get involved in investing or trading, they often look at the prices of certain assets. However, be mindful that those numbers are not always representing the same thing! There can be great differences in the structure of an asset.

    When you, for example, look at the price of a share in a company, you have to be mindful of the amount of shares that are outstanding for that company. Currently, Amazon shares are priced at about $1924 a share, while Microsoft shares are priced at about $112 per share. Yet, the market cap of these companies is quite comparable! The total market cap of Amazon is about $956 billion while that of Microsoft is about $864 billion. This can also go the other way - where the price of two shares are pretty similar while the total market capitalization is completely different!

    Make sure you don’t get caught in the trap of looking only at the price of the asset itself! Often, the best investments are those that have a great structure behind them, which is often based on some kind of a total market capitalization.

    The structure of non-equity assets can be a bit different than that from an equity asset, but the overall idea is largely the same. In general, for non-equity assets we want to be looking at the number of units there are in the marketplace. Since we try to value our non-equity investments based on the supply vs. demand dynamics, we can already go a long way knowing what the (anticipated) supply of that asset is. In the case of equity investing, it is important to get an idea of the total market cap of the company that we are investing in. We find the total market cap of a company by multiplying the shares outstanding by the market price of the shares. Generally, it should be much easier for a $20 million company to turn into a $100 million company than for a $2 billion company to turn into a $10 billion company. However, be mindful that the odds of the $20 million company going bankrupt might be higher than those of the $2 billion company going bankrupt.

    When it comes to both non-equity investing and equity investing, we have to pay a lot of attention to the number of units or the number of shares outstanding! Also, in the case of investing in crypto, the lower the overall market cap, the easier it can sometimes be to make money.

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